What is SaaS? (Software as a Service) Complete Guide to Cloud-Based Software Services
Have you used services like Google Workspace, Notion, or Slack? They all follow the SaaS model.
What is SaaS?
SaaS (Software as a Service) is a cloud-based software delivery model where software is used through internet subscription without installation. Users can access software anytime, anywhere through web browsers or apps.
If traditional software is about "purchase", SaaS is about "subscription".
Characteristics of SaaS
- Cloud-based: Provided through internet, no installation required.
- Subscription model: Pay monthly or annual subscription fees.
- Automatic updates: Provider handles updates and maintenance automatically.
- Multi-tenancy: Multiple customers share the same infrastructure.
- Accessibility: Can access anywhere with internet connection.
- Scalability: Can easily adjust number of users or features as needed.
SaaS vs Traditional Software
| Category | Traditional Software | SaaS |
|---|---|---|
| Purchase method | One-time purchase (perpetual license) | Monthly/annual subscription |
| Installation | Installation required on each PC | No installation, web access |
| Updates | Manual updates, separate purchase | Automatic updates, free |
| Access | Only on installed devices | Anywhere with internet |
| Initial cost | High | Low |
| Maintenance | User responsibility | Provider responsibility |
| Data storage | Local storage | Cloud storage |
Types of SaaS
Horizontal SaaS
Applicable to all industries and businesses
- Google Workspace (email, documents)
- Slack (work messenger)
- Zoom (video conferencing)
- Notion (collaboration tool)
Vertical SaaS
Specialized for specific industries
- Veeva (pharmaceutical industry)
- Toast (restaurant management)
- Procore (construction management)
- Mindbody (fitness center management)
Popular SaaS Examples
Work Collaboration
- Slack: Team communication
- Asana / Jira: Project management
- Notion / Confluence: Document collaboration
- Zoom / Microsoft Teams: Video conferencing
Marketing & Sales
- HubSpot: Marketing automation
- Salesforce: Customer relationship management (CRM)
- Mailchimp: Email marketing
- Google Analytics: Web analytics
Design & Development
- Figma: UI/UX design
- Adobe Creative Cloud: Graphic design
- GitHub: Code repository
- Vercel: Web hosting
Accounting & HR
- QuickBooks: Accounting
- Rippling / BambooHR: HR management
- Gusto: Payroll management
SaaS Business Model
Pricing Strategy
1. Freemium (Free+Paid)
- Basic features free, advanced features paid
- Example: Notion, Slack, Zoom
2. Tiered Pricing
- Multiple plans like Starter, Pro, Enterprise
- Example: Salesforce, HubSpot
3. Per-User Pricing
- Charged based on number of users
- Example: Google Workspace, Microsoft 365
4. Usage-Based Pricing
- Charged based on actual usage
- Example: AWS, Twilio
Core Metrics
MRR (Monthly Recurring Revenue)
- Monthly recurring revenue
- Most important metric for SaaS
ARR (Annual Recurring Revenue)
- Annual recurring revenue
- MRR × 12
Churn Rate
- Rate of customers leaving service
- Lower is better
LTV (Lifetime Value)
- Revenue a customer brings over lifetime
CAC (Customer Acquisition Cost)
- Cost to acquire one customer
- Ideal: LTV > CAC × 3
Advantages and Disadvantages of SaaS
Advantages
User perspective:
- Low initial cost: Can start without large investment
- Easy start: Use immediately without installation
- Automatic updates: Always use latest version
- Access anywhere: Not restricted by location
- Flexible scaling: Change plans as needed
Provider perspective:
- Predictable revenue: Stable revenue with subscription model
- High margin: Sell to many after one development
- Continuous relationship: Build long-term customer relationships
- Quick updates: Deploy immediately to all users
Disadvantages
User perspective:
- Subscription fatigue: Costs accumulate when subscribing to multiple services
- Internet dependency: Cannot use without internet
- Data control: Data stored on external servers
- Customization limits: Limited customization options
Provider perspective:
- Low initial revenue: Takes time to accumulate revenue with subscription model
- High churn burden: Customer retention is very important
- Continuous investment: Need to continuously develop and maintain
Frequently Asked Questions
Q: Are SaaS and cloud the same?
A: Similar but different. Cloud is a broader concept, and SaaS is a type of cloud. Cloud includes IaaS (infrastructure) and PaaS (platform) besides SaaS.
Q: Is SaaS secure?
A: Most SaaS companies provide high-level security. They professionally manage data encryption, backup, disaster recovery, etc. It can be safer than individual companies managing themselves.
Q: Can't use if internet goes down?
A: Generally yes. However, some SaaS provide offline mode for limited use. (e.g., Google Docs, Notion)
Q: Can data be backed up?
A: Most SaaS provide data export function. It's good to back up data regularly.
Q: Should small and medium businesses also use SaaS?
A: Yes! Actually more advantageous for SMBs. Use professional tools without initial investment, using only what's needed, and without IT personnel.
Conclusion
SaaS is an innovation that completely changed the paradigm of the software industry. It provides great value to both individuals and companies with low entry barriers, convenient accessibility, and continuous updates. More software is expected to transition to SaaS model in the future. Choosing and utilizing appropriate SaaS tools can greatly increase work efficiency!